Meanwhile, you have a massive threat to supply in Russia’s ongoing war on Ukraine, and the expected surge in demand from China during its COVID reopening. 

Central banks across Europe and Asia have dropped a massive swell of liquidity from the sky. 

And WTI crude continually finds support around $75 per barrel. 

While $75 per barrel might not be as “profitable” as some of the calls for $100 to $120 oil by Q3 this year, that figure is still a terrific output number for U.S. oil and gas companies. 

In the Permian Basin, many producers are minting cash at a breakeven price between $40 and $50 per barrel. 

As I’ve noted, like in 2014, companies have been careful not to over expand production. Doing so has padded their margins, boosted cash flow, and helped them reward shareholders for their patience. 

Today, I want to highlight yet another long-term energy play that can provide a strong, steady cash flow for your portfolio.

Focus on the Balance Sheet… Please!

A few weeks ago on “Roundtable”, Roger Scott and I discussed the top energy stocks for the year ahead. Unsurprisingly, he listed Chevron (CVX) as a candidate for the top-performing stock of 2023. 

I typically keep my focus on U.S.-only production. Chevron’s upstream portfolio places its facilities on every continent except Antarctica. 

The company produces a large amount of oil in North America. But the share of its portfolio in North America is barely larger than its output in Africa & Latin America, Europe & the Middle East, and Asia-Pacific. 

Let’s look at where Chevron produces around the globe:

But in the world of finance, all rules remain the same when it comes to solid balance sheets and share value. 

Chevron has a perfect balance sheet with a Piotrotski Score of 9. With the F Score, a company receives a point for each balance sheet metrics listed below. 

The company recently announced a $75 billion buyback program for its outstanding shares (it gets a point for fewer shares outstanding year-over-year.) 

To put that buyback into perspective, the program is larger than the market capitalization of all but 12 U.S. oil producers. 

The stock trades within the range of the Graham Number, a defensive stock price that analyzes both the company’s earnings per share and its book value. 

The Graham price, which investors should be comfortable paying for the shares, is about $185. That represents an attractive upside from current levels. 

And since we can anticipate that Chevron will improve both its EPS and book value in the future, this defensive figure should increase every time that we see the company report earnings. 

In addition, it hiked its dividend once again by 6%.

Understanding Production

The most interesting part of the company’s recent earnings report was the news it had cut production globally. 

The company had ended a contract in Thailand and Indonesia that altered its final output figures. But it did increase its output by 4% in the Permian Basin, one of the most capital-efficient regions for drilling in North America. 

Even though its production guidance was muted, the company’s cash flow remains robust. In Q4, its cash flow came in at $12.5 billion, an increase of nearly $3 billion year-over-year. 

Chevron is showing strength in efficiency. And because of rising CAPEX costs, its management is making the right decision. 

Instead of testing its margins, the executives are just returning excess capital to shareholders and boosting the price. 

The company’s balance sheet is in prime condition for whatever comes in the energy markets in the years ahead. 

Its net-debt-to-equity ratio sits at a paltry 0.05x, which is better than its peers in Exxon (XOM), ConocoPhillips (COP), Occidental (OXY), and Marathon (MRO). And I’m a fan of all four of these competitors. 

My view is that oil prices are heading higher, not lower. 

Demand should rise through the reopening of China. Capital investment is falling in the space, complicating the supply picture for the years ahead. 

And any event in Russia or the Middle East that increases the geopolitical premium will boost oil prices. I’m content to own one of the premier oil majors, given their strong balance sheet and commitment to shareholder interest. 

To your wealth,


Garrett Baldwin

P.S. If you missed my articles on the energy sector earlier this week, you can view them each here:

The Top Investment Trend For 2014 (Part 1)
The Top Investment Trend For 2014 (Part 2)
The Top Investment Trend For 2014 (Part 3)

Market Momentum is Green

If you’re looking for value in the energy sector, head over to Tactical Wealth Investor. This market continues to defy logic as liquidity pours into the global system with zero regards for a pending correction. The 2020 YOLO market is back for now. Trade with positive momentum, and set tight stops.

Two years later, oversupply hammered the global energy markets. We saw crude plunge under $40. 

That eroded shareholder confidence. Since then, activist investors have pushed aggressively for executives to enhance shareholder value. And as public policy tilts away from carbon-based fuel production, the cost of capital for new energy projects has soared. 

Today, I want to take you inside another big energy name that should be a part of any long-term portfolio. I consider it to be a top oil investment of 2023. It’s energy week here, and we’ll add another name to the list.

It’s Expensive to Drill

According to Goldman Sachs, the cost of capital in 2012 for new solar and energy projects was in the 8% to 9% range. Nearly a decade later, the cost of capital for new solar projects slumped to 3%, while crude projects increased to nearly 20%. 

Meanwhile, the impact of inflation is hammering this industry. New oil-well production is very capital-intensive. It requires spending on rising labor, mineral, and metal prices. 

It’s estimated that companies in the Exploration and Production space spent 20% of their CAPEX last year just to maintain current production due to inflation increases. 

The U.S. government hasn’t made it any easier on the sector. The White House has called on energy producers to increase production, but policies effectively strip the demand for crude from some of the nation’s largest markets by 2035. 

In California, a ban on new gasoline-powered vehicles would neuter the gasoline markets, thus dramatically cutting expected demand. 

When a company builds a well, these things have shelf lives of 20 to 30 years. But the government wants to effectively sunset that production in the next 15 years. Shareholders want nothing to do with this. 

That’s why companies are keeping their costs and production increases in check. In addition, they’re focused on improving shareholder value by increasing dividends, buying back stock, and paying off debt. 

All three of these things can make for an attractive investment. 

As I’ve noted, investors should look for oil producers with a Piotroski F Score of 9 – a perfect figure. This score suggests a very shareholder-friendly executive team, and a commitment to consistently delivering results. 

There are 11 companies in the drilling, E&P, and integrated oil industry space. From a value perspective, no name stands out more than Marathon Oil (MRO).

Digging Into the Eagle Ford Basin

Marathon Oil makes a lot of money in Equatorial Guinea. But it’s been increasing its output in the energy-rich Permian Basin in Texas and other shale locations over the years. 

It also operates in the Scoop/Stack basin, Eagle Ford, and the Bakken. A lot of investors are increasingly concerned that shale production may have peaked. 

The combination of rising oilfield services inflation and the dwindling of prime drilling acreage are weighing on that sentiment. The challenge is that costs will rise. 

But Marathon has increased its pipeline of energy production through a well-timed purchase of 130,000 new acres in the Eagle Ford formation.

With more than 600 drilling locations, the company has about 15 or more years of capacity that will fall under its portfolio. 

Meanwhile, MRO has been buying back stock, and if crude prices remain above $45 per barrel, there will be more cash to return to shareholders. They’ve been the most aggressive company among its peers to reduce its outstanding shares. 

Between Q3 2022 and 2021, the company reduced its share count by 14.5%. The next closest competitor in terms of outstanding share reduction during that period was 6.7% by Apache (APA). 

And, in this environment. A major geopolitical event in Ukraine or the Middle East could shock the global supply-demand imbalance overnight.  

Marathon has been a winner for the last two years. And with improving asset quality, a commitment to a strong balance sheet, and an industry that will likely see higher prices for longer, MRO is a great play for investors looking to squeeze every penny possible out of this business. 

My current upside target for MRO is $35 in a market that works through the economic kinks. Once the Fed pivots, I anticipate greater energy inflation in the future. MRO is a great place to park some cash for now.

To your wealth,


Garrett Baldwin

P.S. Please let me know if you have any feedback, questions about today’s issue, or anything else. Just email us at hubfeedback@wealthpress.com.

*This is for informational and educational purposes only. There is an inherent risk in trading, so trade at your own risk. 

Market Momentum is Yellow

If you’re looking for value in the energy sector, visit my Tactical Wealth Investor. There, I offer you my favorite two energy plays that provide even greater shareholder value, strong dividends, and incredible upside. Momentum remains yellow at the moment, but investors can anticipate a possible move lower as we head into the final two weeks of February.